Labour and Social Development in Malaysia
Labour and Social Development:
Improve Protection of Labouring Communities
By M. Nadarajah
The Malaysian Trades Union Congress (MTUC) organized a national workshop on ‘Taxation and Social Development’ in Kuala Lumpur, on 12 – 13 June 2002. The national workshop formed part of an ICFTU-APRO response to the 1997 Asian financial crisis which was concerned to understand the crisis affected social development and the social protection of labour in particular. The ICFTU-APRO holds that national governments are responsible for funding the maintenance of social safety nets and social development through taxation. Hence, the ICFTU-APRO conducts country case studies to examine taxation and social development and holds national workshops to discuss such issues with trade unionists.
The Kuala Lumpur workshop noted that while Malaysia has a reasonably well-developed social security system for labour, certain critical issues call for reflection and closer attention.
1. Caring Society?
The social agenda of Malaysian national policies since the New Economic Policy bear implicit as well as direct references to creating a ‘caring society’. For labour, however, the situation appears to show a movement away from a caring society to ‘high social risk society’, and an unjust one.
2. Malaysia Incorporated and Social Policy
The social development policy is located within the framework of Malaysia Inc. which is itself embedded in a larger ‘economic growth framework’. This framework is highly influenced by neo-liberal ideology, geared towards capitalist notions of profit-making and wealth creation and characterised by skewed patterns of income distribution. Thus, the economic security of businesses is more crucial than the social security of workers.
3. Privatisation and Redistribution of Wealth
Malaysia basically adopts an economic growth model that assumes that a dynamic economy will benefit all citizens. However, growth and redistribution are different issues. We require comprehensive and sustainable wealth redistribution policies to benefit all citizens, and the ‘losers’ in particular. There was a focus on redistribution in the 1970s. The policies of privatization which emerged in the early 1980s, though, tended not just to reduce governmental inefficiency but also the government’s role in wealth redistribution as an important social goal. Privatisation and economic liberalization assume that the market is the most suitable vehicle to achieve redistribution. But it is well established that privatisation benefits corporations far more than individual citizens with the result that in Malaysia, the income share of the lowest 40% of households was only 12.9 per cent, according to a 1996 income distribution report.
4. ‘Culture of Privatisation’ and Social Protection
The culture of privatisation, as mentality and institutionalised practice, has spread from the economy to the social sectors. The government has increasingly reduced its provision of social protection and shifted its responsibility to the individual and the family. This is in fact a central part of Vision 2020 and the caring society, and a tendency towards the privatization — rather than the socialisation — of social protection. Some support this shift on grounds that the government cannot indefinitely support social safety net programmes. Yet a culture of privatization upsets priorities and introduces a careless, high-risk society. For instance, if health services are privatized, the best health care would be available only to those who can afford it, not necessarily to those who need it. Privatisation displaces real ‘need’ with market ‘demand’.
5. The Family
Existing family-centred action programmes are hardly commensurate with the stresses to which the family is exposed today. While housing for the poor is much too politicised, housing for poor labour is not a priority. Studies confirm the government’s poor performance in this area. In addition, existing low cost housing does not provide comfortable living space for an extended family, which indirectly neglects the older generation and children, especially in families where both husband and wife are working.
Long working hours deprive breadwinners of the opportunity to spend quality time at home. The family is all too often subjected to stresses arising from a poorly protected post-retirement period, poorly regulated retrenchment, involuntary unemployment, lack of labour protection in the informal sector, absence of unemployment benefits, and the need for double jobs to make ends meet.
Decision-making power over the use of communal or collective resources, including financial and productive resources, along with changing ownership patterns, has not shifted towards individual workers or their families. Processes and policies to shape and strengthen a self-conscious civil society in which the family plays an important comprehensive role are almost non-existent. In effect, indiscriminate privatisation and marketisation — of health care services, for example — expose the family to high levels of social risks.
6. A Vulnerable Economic System
The prevailing economic strategy of ‘growth with redistribution’ stresses ‘growth’ in the belief that a high performing economy will enable social development to take care of itself. However, the long-term sustainability of our economy in its present shape is questionable. Prior to 1997, the economy seemingly did well with approximately 8 % growth. But the 1997 financial crisis exposed many weaknesses inherent in the economy, such as a serious lack of mechanisms for effective development of technology, a lack of ransparency and good corporate governance, and pervasive cronyism). Our system registers 5.6 in a ‘Corruption Perception Index’ (‘0’ for highly corrupt and ‘10’ for highly clean) and is placed 36th in the Transparency International’s list.
7. Regressive Taxation System
The Malaysian tax system hardly helps workers and their families. The tax system virtually institutionalises an indirect tax regime. A projection of tax revenues from 2000 to 2005 indicates that personal income tax will drop by about 0.5% while sales tax will increase by about 10%. Instead of being premised on progressive redistribution, the Malaysian tax structure is fast becoming regressive, pro-business and pro-rich. Indirect taxation in a highly unequal society results in regressive distribution where the tax burden shifts to and hurts the poor.
To increase its tax revenues, the government should expand the ‘net’ of taxation to levy taxes on currency transaction (‘Tobin Tax’), foreign direct investment, transfer pricing, internet commerce (‘bit tax’), and the environment (‘green’). It goes without saying that a fairer tax system based on increased revenues will contribute immensely to social development.
8. Crisis Management
Labouring communities need support during crises not of their own making but which result from economy’s underlying growth model. Malaysia has some social protection programmes but it has neither institutionalised the social protection of labour nor established an ongoing crisis response mechanism. The National Economic Recovery Plan, designed by the National Economic Action Council (NEAC) to manage the impact of the 1997 financial crisis, should be amenable to long term applicability, given the vulnerability of the growth model to periodic crisis. As it is, any social protection in times of crisis is provided ad hoc and amounts to little more than a ‘one-time dispensation’.
Tripartism presupposes a process by which workers, employers and the government resolve their differences and promote cooperation, on an equal footing, for mutual benefit, growth and development. Tripartism, so conceived, does not exist in Malaysia. Consider the Employees Provident Fund for instance. The EPF resources derive from the accumulated contributions of employers and workers. The government should assume the role of trusteeship and be responsible for regulation. In reality, the government enjoys undue privilege in the deployment of EPF money. Given the serious lack of transparency, the government’s interventions in the use of EPF money do not really benefit labour. Funds have been used to save and salvage bad investments but not provide for retrenched workers who need critical support in times of crisis. If the official tax strategy benefits business, the savings of workers have also been used to benefit business. As yet, there is simply no tripartism as mature, institutionalised, democratic and transparent practice.
10. Unionisation and the Informal Sector
The state’s pro-business authoritarian and paternalistic attitudes contribute to the present low level of unionisation. Malaysia has over 500 unions. Yet only about 10 per cent of those employed are unionised. Workers in the informal sector, estimated to be half the employed, have have no union protection. Their inability to join unions denies them the social protection that comes through collective agreement between unions and employers. Generally, such a situation limits the power of workers to influence social development policies. The workers’ influence is diminished by stringent laws which restrict free association, vague definitions of “national security”, prohibition of political party affiliation, and the absence of systematic representation of workers’ interests in Parliament. Given the real vulnerability of unionists to repressive laws like the Internal Security Act, not even a token seat in the Senate can truly benefit the needs of the labour movement.
11. Contradictory Legislation
There is a major contradiction between the provisions of the Employment Act and the Company Act. Since the economic and political environment privilege employers over workers, the Company Act generally takes precedence over the Employment Act. For example, when a company enters receivership before closure, the chances that workers will receive what is due to them are rather slim. The occupy the bottom of the list of those who are to be paid. Such a situation exposes workers to high levels of insecurity in terms of losing their jobs and their earnings. This basic and unfair contradiction must be resolved to protect the interests of workers.
12. Unrealistic Retirement Age
Generally there is little appreciation of labour’s contribution to improvements in the quality of life that Malaysia has achieved. There is also little sensitivity to how changes in the quality of life may adversely affect workers and their families. Life expectancy has increased so that it now exceeds 70 years (with women living slightly longer than men). Even so, the retirement age is still fixed at the outdated level of 55 years, with the private sector following the public sector in this matter. With longer life expectancy, there is an urgent need to avoid an early retirement which exposes workers to greater insecurity and psychological stress in the post-retirement period. Retiring people early to absorb younger workers, and thereafter claiming low unemployment rates only manipulates numbers without addressing the unemployment problem of early retirees.
It is also necessary to reconsider the retirement age because of the increase in the average age at marriage. from 20 years to 30 years. Consequently more and more workers retire while thei children are still at school. Workers are increasingly burdened with providing education to their young and completing payments for houses and/or vehicles out of their pension or EPF payments. Often many families are thereby placed at great social risk owing to inadequate or rapidly depleted funds.
13. Post-retirement Poverty
Post-retirement poverty is becoming a serious, if neglected, social issue. Malaysia’s first generation of industrial workers — those started work in the late 1960s or the early 1970s — have either retired or are close to retirement. Many among them are floor level workers who will retire with EPF sums of RM70,000 or less. Amounts of this size will be exhausted in about four years of retirement. Thus, on average, 60-year retirees will find their financial resources exhausted and be forced to spend their remaining years being dependent on others. This is symptomatic of the emergence of a new category of disguised poverty and high insecurity.
14. Problems of EPF
Embodying a compulsory savings strategy, the EPF offers social protection to individual workers through their own savings, supplemented by employer’s contributions. However, EPF faces a number of problems. One critical problem is related to the use of EPF money and its investments. EPF’s Investments are not subject to established principles of transparency. Nor are they decided according to a stringent and fair practice of tripartism.
There are also problems with EPF’s various pre-retirement withdrawal schemes. Schemes which are linked to education, house payment or computer purchase defeat EPF’s fundamental purpose which is ensure workers an acceptable degree of post-retirement security. Moreover, such schemes effectively transfer the government’s role in social protection to individual workers.
A third major problem arises after a worker’s entire EPF contribution is withdrawn. The total withdrawal of a worker’s EPF contribution in the form of a lump-sum payment assumes that the money can then be invested in productive economic activity. Retirees are somehow expected to turn into businesspeople or investors who can provide for themselves. This is a spurious assumption. It is highly unlikely that most retirees can afford major investments. Especially for lower-level workers in a turbulent economic environment, the investment of funds withdrawn from EPF rarely provides a secure post-retirement income.
By now it is well known that the insurance industry has long had its eye on EPF’s enormous resources. The insurance industry knows it can harvest huge profits if EPF money is made available to the industry. Already the industry has offered some ill-conceived pension schemes which are not advantageous to workers’ interests. Unlike the attractive government pension scheme, private-sector profit-driven schemes must be very carefully and strictly regulated to prevent workers from losing instead of gaining from those schemes.
15. Minimum Wage And Unemployment Benefits
Malaysia has no statutory provision for either minimum wage or unemployment benefit. The MTUC has proposed a minimum wage of RM900 that guarantees the basic needs of the labouring community. The MTUC’s proposal would also be dynamic, that is, adjusted with changing times. The government has not accepted the proposal.
Both the government and business take a negative attitude towards unemployment benefits. In particular, business considers that a society that provides institutionalised support for unemployed workers will place an extra financial burden on business sector and encourage a ‘dole mentality’.
There is clearly a need for a proper strategy of targeting to realise social protection for labour. In Malaysia, the only well developed strategy of targeting is linked to the government’s affirmative action policy. This policy is itself based on exclusive ethnic principles rather than inclusive economic principles. In the long run, such policies and their politically motivated targeting strategies are harmful to the overall social security of workers regardless of ethnicity.